Apple’s halo loses shine in investor fight
By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
No one looks too good in Appleâs fight with David Einhorn. The Greenlight Capital founder scored a legal point, but better governance wasnât his main objective. Apple comes off amateurish. The California Public Employeesâ Retirement System, despite worthy shareholder-friendly aims, seems careless. The Securities and Exchange Commission also missed a trick.
The general bumbling leaves Einhorn least blemished. He wants Apple to issue preferred stock to his own specifications, and doesnât like a provision the company planned to put to shareholders at Wednesdayâs annual meeting that would have made it impossible for the board to do so, at least without shareholder approval. So he sued to block the vote based on Appleâs combining of the issue with several others. He won â but not on the merits of his âiPrefâ idea.
Apple, presumably thanks in part to its lawyers, ends up the worst for wear. Chief Executive Tim Cook called Einhornâs lawsuit a âsilly sideshow,â but the SECâs rules make clear companies canât combine separate matters into one vote. Even without legal certainty â the judge acknowledged the issue has received scant court attention â the simple and safe, not to mention gracious, move would have been to untether the proposed changes when the issue came up, even if it meant delaying them. Other companies are now surely scouring their proxy statements for similar transgressions.
Then thereâs Calpers, which gave full-throated support to Apple. Thatâs understandable in a sense because the package of measures included majority voting for directors as well as ending the boardâs ability to issue preferred stock without shareholder approval. Good governance could be threatened, however, if companies bundle dodgy proposals with sound ones â not to mention the questionable message sent by neglecting SEC rules.
The regulator perhaps isnât blameless either. Apple filed its proxy statement in December. As the judge noted, SEC inaction doesnât mean it has approved anything. Yet Apple, with its $420 billion market value, is the largest company under the watchdogâs jurisdiction, so a degree of scrutiny is merited.
Either way, the end result is a distraction for shareholders, who now must wait to vote on desirable changes and figure out how to unbundle, in a different sense, Einhornâs legal victory from his preferred stock idea. It all takes more shine off Appleâs halo.